While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Covanta (NYSE:CVA) slipped 1.5% this morning after Wedbush downgraded the waste management company from outperform to neutral.
So what: Along with the downgrade, analyst Al Kaschalk lowered his price target to $23 (from $24), representing about 5% worth of upside to yesterday's close. While Kaschalk remains bullish on Covanta's long-term growth prospects, he thinks that some near-term risks could weigh on the stock's already rich valuation.
Now what: Wedbush sees limited upside at Covanta's current levels. "[We] are downgrading the shares due to what we believe is: (i) weak project pipeline for the construction of large greenfield waste energy plants; (ii) near-term headwinds from above market contract transitions and a reduction in debt service revenue, and (iii) shares trading at the upper end of the ir five-year CF and EBITDA multiple," noted Wedbush. With the stock currently boasting a 3%-plus dividend yield, however, those short-term concerns might be providing patient Fools with a solid long-term income opportunity.
Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.